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The Land of Enchantment—a Market Primed for Industrial Development

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By Riley Mckee, NAI Maestas & Ward Industrial Real Estate Advisor. An article featured in the May 2020 Western Real Estate Business Magazine by NREI.com. 

If summarized in one word, New Mexico’s industrial real estate market can best be described as undersupplied. Steady increases in demand combined with a dearth of new construction have resulted in record low vacancy rates in Albuquerque, Las Cruces, and Santa Fe—the state’s primary metropolitan areas.

In Albuquerque, a string of noteworthy projects are underway. Ben E. Keith Foods, a Fort Worth based supplier of food products, is building a 260,000 square foot regional headquarters and distribution center to service markets throughout the region. FedEx Freight recently opened a 95,000 square foot distribution center strategically positioned on a 50-acre site to expedite planned expansions. Brunacini Development, the city’s largest industrial landlord, just completed a 140,000 square foot multi-tenant distribution center anchored by Bunzl, a London based food packaging distributor. Finally, and perhaps most notably, Kairos Power, a nuclear energy firm, acquired a 110,000 square foot research and development facility after a nationwide site selection process. It plans to expand the facility (which sits on 35 acres) as part of an incentive package agreed to with the state.

Las Cruces is seeing strong development activity as well, specifically in Santa Teresa, an international Port of Entry 21 miles south of the city. W. Silver Recycling, which processes nonferrous metals, recently announced plans for a 120,000 square foot facility touting the advantage of being located near markets in Mexico. Electrical wiring manufacturer Admiral Cable is expected to complete a 195,000 square foot facility this year on a site that is well suited for intermodal transport. A few miles south in Sunland Park, NM, Stampede Meat is in the process of renovating and expanding a processing facility previously owned by Tyson Foods.

This activity is certainly welcome, but it represents a drop in the bucket when compared to statewide demand for development of industrial space. Albuquerque’s vacancy rate is currently at a historic low, hovering between 2.5 and 3 percent since 2018. Most remaining available space is functionally obsolete, which some nimble developers have astutely retrofitted for users with urgent needs. Santa Fe’s market is even tighter—as of this writing, only 40,000 square feet of space is available.

 

      

While primary markets throughout the United States have enjoyed a consistent influx of new construction, New Mexico’s industrial real estate portfolio has not kept pace. This is partially a consequence of the state’s tertiary market nature but is also explained by its position relative to other states during economic cycles. Impacts of the last recession were not felt locally until several years after the fact while evidence of recovery has only recently become apparent. To investors and developers active in markets at their peak, this presents a compelling opportunity. New Mexico’s growth trajectory is only beginning.

Though COVID-19 has blindsided markets worldwide, industrial real estate users are expected to escape its most devastating impacts, unlike their retail and office counterparts. Demand for robust and efficient supply chains is as strong as ever.

To read the entire article from Western Real Estate Business Magazine (Pg. 29), click here

Riley McKee is an NAI Maestas & Ward commercial real estate specialist that advises industrial and logistics real estate owners and occupiers on leasing, acquisitions, and dispositions.  Learn more about Riley, his properties and his insights to market shifts in commercial real estate here. 

Competitive SBA Rates & Incentives Benefit Industrial Buyer Despite COVID Uncertainty

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By Alex Pulliam, NAI Maestas & Ward Land and Industrial Advisor

Historically, the South Valley has held a reputation for being a less desirable submarket of Albuquerque but as the industrial real estate market witnesses a shrinking supply of suitable properties, the area has gained interest from active buyers. It is particularly attractive for industrial users looking for both large land area and sizeable warehouse buildings- as evidenced by the recent sale of 121 Dale Ave. SE, a 7,000 SF warehouse on 2.5 acres.

The building was originally marketed as a lease option, but interest came from buyers looking to occupy the space. After talks with its multinational corporate owner, it was determined that a sale option was the best path forward. Making the property available to purchase resulted in multiple offers leading to a “best and final offer” request. Ultimately, the purchaser was a local user looking to relocate and expand his trucking operations. The property went under contract in early January 2020 following two months of negotiations.

The buyer benefited from competitive SBA interest rates and the deal was slated to close in March. But when March came around, financial institutions faced direct impacts of COVID-19 as PPP Loans consumed lender’s time and resources. This caused significant delays in the transaction which finally closed in early June.

Granted the transaction took longer to close, the attractive SBA rates combined with the quality of the property were compelling enough for the buyer to remain engaged in the sale process. When the transaction closed, it sold at the high end of the market relative to other recent sales in the area. The buyer benefited from a feasible monthly outlay thanks to SBA rates and incentives.

Through the CARES Act the SBA continues to offer competitive rates, and buyers looking to purchase could benefit from the SBA making their first six payments. For owner-occupied buyers, this is an ideal time to consider purchasing if they can find the right property. For sellers, this is the ideal time to explore selling because there is a limited supply and demand for industrial property with key industrial traits remains high regardless of location.

In addition to Alex’s industrial insights, she is known for problem-solving with the right people to get the job done. She is committed to her goal of meeting deadlines and prioritizing her daily activities to exceed her client’s expectations.

For more details on this transaction and other industrial opportunities, contact Alex Pulliam or Riley McKee

Broad rent strikes would be disastrous

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By Riley McKee, NAI Maestas & Ward Industrial Real Estate Advisors
An article featured in the executive desk of the 2020 Albuquerque Journal, Edition 4.27.2020

In an open letter addressed “To our landlords,” the CEO of The Cheesecake Factory announced that the restaurant chain would not be making rent payments in April due to extraordinary challenges the company has faced since the outbreak of COVID-19.

Other prominent retailers like Subway, Dick’s Sporting Goods and Staples have made similar pronouncements in recent weeks, as virus containment efforts have halted “nonessential” business activity. The justification provided is understandable. Closures mandated by state and local governments have all but eliminated the ability to generate revenue, a fundamental problem deserving of sympathy.

But glaring defiance of lease obligations is certain to inspire copycats. Tenants across the spectrum of property types — from well-known retailers to local apartment renters — now have justification to do the same. The nascent but very real threat of a widespread rent strike places our long-term economic future on a knife’s edge.

While the virus has felt allconsuming thus far, its negative impacts can be contained.

Medical professionals have become national heroes through tireless care for those infected.

Millions of Americans have willingly complied with social distancing guidelines. And thousands of business owners have put their life’s work on the line by yielding to emergency restrictions. These sacrificial efforts have resulted in a plateauing rate of new cases and deaths putting a gradual return to normal life in view.

On the economic front, relief efforts like the Paycheck Protection Program, direct payments to individuals, and expanded unemployment insurance have been tailored to offset losses.

These measures can be likened to storing the economy in a giant freezer, preserving and protecting it for a later date.

If the economy can be effectively “frozen” while the war against COVID-19 is waged, a brief thaw, so to speak, is all that will stand between the hardship of today and the prosperity of tomorrow.

But if healthy economic activities — and for that matter, the rule of law — are cast aside amidst the current panic, we face a difficult road ahead.

The most effective means of preserving economic health is to honor existing contractual obligations.

Growth and profitability benchmarks can be amended. Payroll concerns can be addressed by emergency loans. Furloughs and layoffs, though lamentable, are accounted for by expanded unemployment insurance and direct cash payments. Executives and senior managers — those most equipped to handle short term losses — can ride out an interim pay cut.

But the economy cannot survive a suspension of good faith, which is why The Cheesecake Factory’s decision is uniquely troubling.

Without minimizing legitimate challenges that tenants currently face, what is a better response? In a word, conciliation. Landlords are keenly aware of ongoing circumstances and the vast majority are willing to help. They have a meaningful interest in their renters’ survival beyond the crisis and know pushing too hard would be foolish. But they also have burdens and as May 1 approaches, grow increasingly nervous.

April rent figures were down, but a full month of virus containment measures since then portends an even lower collection rate. And a potential domino effect of disaster as one default triggers another.

Much has been said recently about “getting through this together.”

It’s an encouraging sentiment, but only to the extent it’s actually upheld. The Cheesecake Factory failed the test by unilaterally reneging its obligations in times of trouble, when many of its landlords would willingly have sought a mutual arrangement.

So for tenants who are able next month, pay your rent. For those struggling with a sudden loss of revenue, pursue relief programs to help bridge the gap. If your or your business is ineligible or still facing budget constraints, pay what you can. And if you find yourself out of options and out of cash, have a candid conversation with your landlord and work toward a bilateral solution.

By doing so, we can preserve the blessings of an economy — and society — built on trust.

Riley McKee is an industrial real estate adviser for NAI Maestas & Ward Commercial Real Estate. 

The executive’s desk is a guest column providing advice or information about resources available to the business community in New Mexico.  

NAI Executives Report from the Front Lines of the Coronavirus

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By Erika Morphy of GlobeSt.com
April 1, 2020

The impact of the health crises on the commercial real estate industry has dramatically changed the industry’s landscape within the space of 30 days. With April getting underway, four NAI executives offered their perspectives on the impact of the pandemic and how they are addressing the challenge. These NAI officers have some of the biggest portfolios of managed properties in the company.

Brokerage Deals

“Most transactions near fruition are still being signed, with some tenants asking to push back start dates post stay-at-home orders, or landlords asking to push back on start dates when construction may be needed by the landlord as part of the deal. Other in-process deals are taking a ‘wait and see’ approach before they sign and some early stage deals are now frozen,” according to NAI Farbman President Andy Gutman, from Detroit, MI.

Dave Petersen, CEO of NAI Hiffman in Chicago echoed Gutman’s sentiments, adding that “it is a great moment to solve lease issues with rent requests that could include blend and extend term, adding personal signatures, gain improved security or other landlord rights as part of a negotiation. Empathy is important but the request for relief should not be a one-way discussion either.”

In Albuquerque, NM, “we are seeing some tenants ask to go month-to-month, as well as many deals going unsigned, with others stalling deals to the degree possible due to uncertainty,” said Debbie Harms, CCIM, SIOR, CPM and CEO of NAI Maestas & Ward.

Petersen pointed out, however, that “there is a great amount of focus being placed on electronic showings whether that’s the use of video conferencing platforms or actual video tours of the space available. Tenants still need space today and we have to use all tools at our resources to help the tenant and our clients to close transactions.

Click here for the rest of the Globe St. com article featuring rent relief, development slowly proceeding and what to do.

NAI Maestas & Ward is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.I

Portland-based Facebook subcontractor to expand with ABQ office

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By Ron Davis – Technology reporter, Albuquerque Business First
February 7, 2020

Western Partitions Inc. is set to make its play in New Mexico by breaking ground on a new office space.

The Portland, Oregon-based drywall contractor that worked on Facebook’s Los Lunas data center plans to expand its full-time New Mexico operations by breaking ground Wednesday on a 9,000-square foot, at 511 Paragon Road SE.

Click here for the rest of the Albuquerque Business First story.
Learn more about Western Partitions and the future they see for New Mexico, click here.

“I believe that the opportunity for WPI to build in this location is not only as a direct effect of the Facebook impact in Los Lunas, but is also a direct result from the lack of industrial inventory in the Albuquerque market. This land is not only zoned for their use, but also has easy access to I 25. This property has gained much velocity as a result of those two factors…. in fact the 2 acre plot of land just to the west of WPI‘s property was sold in December because of the lack of inventory easily accessible to the interstate.” –Todd Strickland, NAI Maestas & Ward Director with the Office Team.

Expanding Horizons and Making Connections

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Keith Meyer, CCIM, SIOR, recently expanded NAI Maestas and Ward’s real estate horizons with the referral though affiliated NAI KRAIN of Guanacaste, Costa Rica on a coffee and avocado farm in Grecia Costa Rica.

Jeff Goode of NAI KRAIN will be the Listing Broker, working with owners Dave and Angela Wohlert on the sale of their 10-acre coffee and avocado farm with support buildings and an 1,800/SF residence. Dave and Angela split their time between their East Mountain Albuquerque home and their farm, which is 5,000/SF up in the Costa Rica mountains overlooking the Central Valley.

“It has been a tremendous learning and life experience,” said Keith Meyer. “While there are many similarities in real estate practice between the two countries, there are also some profound differences.” As an example, there is no Title Insurance as we know it in Costa Rica. There is a 13% transfer tax as well.  And everyone communicates using WhatsApp.

“Learning about the coffee and avocado business and processing was also fascinating. Because of the high altitude of this farm, they are doing some experimental work on new coffee strains for some of the leading global brands we all know.”

“It is a great part of our industry we can work with professionals and companies from all over the world, and I expect to see more of this in the future.”

Relationships are vital in commercial real estate – the best brokerage firms leverage them.

About NAI Global
NAI Global is a leading global commercial real estate brokerage firm. NAI Global offices are leaders in their local markets and work in unison to provide clients with exceptional solutions to their commercial real estate needs. NAI Global has more than 375 offices strategically located throughout North America, Latin America and the Caribbean, Europe, Africa and Asia Pacific, with 6,000 local market professionals, managing in excess of 1.15 billion square feet of property and facilities. Annually, NAI Global completes in excess of $20 billion in commercial real estate transactions throughout the world.

NAI Maestas & Ward Commercial Real Estate completed 408 commercial transactions in 2019 for a total commercial transaction value of $321 million. 

Sustainable textile manufacturer to open NM production facility

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By Collin Krabbe – Technology reporter, Albuquerque Business First
January 24, 2020

A textile manufacturer is bringing production to New Mexico following an expansion.

Green Theme Technologies Inc., which is working to commercialize a sustainable and more effective method of textile production, is looking to start production in Rio Rancho following a move into a 7,500 sf space, 4132 Jackie Road.

Click here for the rest of the Albuquerque Business First story.
Learn more about Green Theme Technologies and the future of textiles that is water-free.

“NAI Maestas & Ward Advisor, Riley McKee led the effort to find the appropriate site for Green Theme Technologies, 4132 Jackie Road.  In a tight market, he was able to find an uncompromised solution which we believe will allow this industrial manufacturer to flourish.  We have also created a wonderful opportunity for the cash flow minded investor to purchase the entire deal.” – Jim Wible, NAI Maestas & Ward Director with the Land and Industrial Team. 

NAI Maestas & Ward Advisors, Keith Meyer, Jim Wible, and Riley McKee worked with both Green Theme Technologies and the landlord to finalize this lease. 

The property is now on the market for sale, presenting a compelling opportunity for investors seeing high-quality industrial assets with strong credit tenants. 

 Click here to see the property flyer.   

 

CCIM 2019 Deal of the Year Under 1 Million

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Engineers Secure Owner-User Investment

RhinoCorps Ltd. has relocated within a building they recently purchased located at 1128 Pennsylvania St. NE, Albuquerque, NM 87110. 

Shelly Branscom, CCIM, and the late Rich Diller, CCIM, SIOR, of NAI Maestas & Ward began representing the building for lease in 2013.  The Seller was a California investor whose spouse passed away just months after purchasing the building.  While Albuquerque has experienced an improvement in the real estate climate over the past several years, some owners have felt the lingering effects of the economic downturn on their properties.  This building was no exception.  Although multiple suites had been leased between 2013 and 2016. When the property was brought to the market to sell in 2014, 1128 Pennsylvania St. NE was in need of updates and additional tenancy to attract a motivated buyer.  After many years of carrying the asset with 20-40% vacancy, the property eventually went back to the bank.  The brokers continued to market the building to several existing tenants.  RhinoCorps expressed interest and the building went under contract in May 2018.

“The Inspection process proved taxing, but we came to a resolution and the buyer expanded in the building, occupying all of the remaining space.” stated Shelly Branscom, CCIM. 

The transaction provided an opportunity for RhinoCorps to become an owner-user.  This small, local firm provides software and simulation engineering services to many government entities including the U.S. Air Force, Sandia National Laboratories, and NASA, among others. 

Representing the seller, Shelly Branscom and Rich Diller worked with the buyer’s broker, Richard Hanna of Hanna Commercial, to finalize the sale of the office property.  Sitting on an acre of land, the 15,800 SF, two-story building has excellent visibility from Pennsylvania St. NE and Mountain Rd NE.   The building boasts many nearby amenities with proximity to Albuquerque’s Uptown and easy access to Interstate-40. 

1128 Pennsylvania was awarded the 2019 CCIM Deal of the Year Under $1,000,000 this past October at the 2019 Intersections Conference held at Sandia Casino. 

NAI Maestas & Ward is a full-service commercial real estate company serving
New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.

 

CCIM 2019 Deal of the Year Over 1 Million Dollars

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On November 12, 2013, an Albuquerque business owner plead guilty to defrauding the Service-Disabled Veteran Owned Small Business Program (SDVOSB), a VA initiative that gives preferential treatment to veterans applying for federal contracts. By falsely claiming his stepbrother—who was in fact a disabled veteran—held an ownership stake in his company, he fraudulently secured $11 million worth of federal contracts and was sentenced to five years in prison.

This tragic lapse in judgement resulted in the shuttering of an enterprise that operated a sprawling facility (about 32,000 square feet of buildings on 16.5 acres) on Albuquerque’s Southwest Mesa which manufactured large concrete vaults for mausoleums. It was an enviable operation in its prime, but lengthy prison sentences are not good for business and the property quickly went into foreclosure.

For the next several years attempts were made to liquidate the property, but a number of unique circumstances prevented this from happening. For one, the surrounding area was transforming. The heavy industrial operation originally occupied a rural area but was now surrounded by residential developments.  Secondly, the property could not compete with comparable sites that possessed better truck access to interstate exits. A 3.5-mile stretch separates the site from I-40, which proves especially lengthy during rush hour.

Furthermore, the property’s scale and uncommon attributes rendered it difficult to find a user that could make use of it as is. Initially brought to market at $4,100,00 the price dropped 25% to $3,125,000 when no progress was made. Then, copper thieves performed their regrettable task and subjected the property to another 20% reduction. Four years later a last-ditch effort to sell was made via an auction—even that did not work.

When Maestas & Ward’s industrial team (Keith Meyer, Jim Wible, Riley McKee) got involved the property was a shadow of its former glory. Years of inattention, several bouts of theft, and nature’s course of action turned it into an overgrown, graffiti tainted shed.

The M&W industrial team understood that a healthy dose of realism had to be injected into the seller’s expectations for any chance of a sale being consummated. After a detailed analysis, it was determined that only the land carried value. The improvements—or what was left of them—would require significant rehabilitation, perhaps at a cost that exceeded the acquisition cost. To their credit, the seller heeded this advice and agreed to market the property at $1,800,000—56% below its original value.

Due to favorable market circumstances and the significant value-add opportunities available, the property quickly generated attention. Within a few months it went under contract to be purchased by an industrial user. However, the surrounding area’s evolution from industrial to residential/retail shuttered the deal as the buyer was unable to secure a zoning certification for their use. Transactions falling through are disheartening but what proved most concerning was the realization that an obviously industrial site might not be able to be sold as such.

Surprisingly, a more viable opportunity quickly came along. A charter school developer and his brokerage team shrewdly discerned that this defunct industrial site, while far from ready-made, conferred multiple advantages from its proximity to major thoroughfares (Coors and Old Coors), location in a dense residential neighborhood, and lower acquisition cost on a per foot basis. A purchase agreement was quickly negotiated, but the story was far from over—several hurdles remained.

The first involved a zone change. Educational uses were not permissive in the subject property’s M-1 zoning designation which made a retail/commercial designation necessary. The brokerage team coordinated with a reputable architect to prepare a thorough, compelling argument for why the subject property’s highest and best use had shifted. Industrial uses no longer fit a neighborhood dominated by residential and retail developments. The county zoning board was sympathetic to these arguments but consented unanimously when it was revealed a highly successful charter school was the intended buyer.

The second hurdle involved environmental concerns. Though the seller had procured a Phase I ESA that reported no Recognizable Environmental Conditions (REC) as recently as January 2016, when that same assessor revisited the site to refresh the report, they changed their tune. Claiming that the property’s decades of heavy industrial use warranted further testing they refused to uphold the previous report’s conclusions. Both buyer and seller were understandably aggrieved but informed guidance from the brokerage team kept things on track. An extension was agreed to and further environmental testing yielded no RECs, just as the initial report indicated.

Then came the most unexpected hurdle of all—the cause of which remains unclear—a fire in one of the warehouse buildings. Having navigated so much thus far this felt like the ultimate injustice. Once again, the brokers provided reasoned guidance and ultimately it was agreed that the seller would file a claim with the insurance company and direct the funds to the buyer post-closing which occurred at long last on December 13, 2018.

Many lessons can be pulled from this account. The prime takeaway, however, is the vital contribution of experienced brokers in a transaction with so many hurdles. From valuation to marketing strategy to negotiation to a zone change hearing to coordinating with environmental engineers to dealing with the most unexpected acts of God, the brokers involved patiently bridged the gap between a lifeless non-performing asset and the thriving charter school it is today.

1255 Old Coors was awarded the 2019 CCIM Deal of the Year Over $1,000,000 this past October at the 2019 Intersections Conference held at Sandia Casino. 

NAI Maestas & Ward is a full-service commercial real estate company serving  New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.

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